To
Shri Shaktikanta Das
Governor
RBI
Dear Shri Shaktikanta Das,
Both the Finance Ministry and the RBI seem to be slipping fast into a sense of undue complacency about the problem of NPAs that debilitated the banking system, particularly the PSU banks, about a decade ago. The PSU banks have “cleaned up” their balance sheets by writing off the old NPAs, assuring the taxpayer that it is only a cosmetic exercise that does not absolve defaulting borrowers of their liability to repay.
RBI’s overly exuberance about the NPA problem became evident when it made a volte face on 8-6-2023 in dealing with wilful defaulters when it abruptly relaxed the 2019 guidelines on
Framework for Compromise Settlements and Technical Write-offs, which permitted
a borrower who committed fraud or one against whom criminal proceedings for fraud are ongoing, in respect of funds borrowed from a bank, to obtain fresh loans from that bank. My letter dated 14-6-2023 addressed to you refers
The banks have written off Rs 14.56 lakh crore between 2014-15 and 2022-23. The share of large industries and services in the written-off amount is Rs 7,40,968 crore or 48.36%. The amount recovered during the period is a mere Rs 2.05 lakh crore or 14.07% of the write-offs (https://thewire.in/banking/a-decade-of-write-offs-how-the-govt-and-banks-failed-to-tackle-npas-and-helped-big-corporations)
In other words, the harsh reality is that 86% of the so-called “cosmetic” write-offs are forever irrecoverable and most of those cases if properly investigated, will reveal fraud and deceit.
That is not perhaps the end of the matter with the NPAs. During the last five years (2018-22) when the old NPAs were artificially brought down, new NPAs of Rs 20 lakh crores have been added. Year after year in this period, the number of new NPAs added was far higher than the numbers written off or recovered from the Gross NPAs (https://www.deccanherald.com/opinion/the-sordid-story-of-npas-1238038.html)
In other words, The NPA problem has certainly not abated. On the other hand, as a result of complacency and even deliberate relaxations granted by the government and the RBI to wilful defaulters, the problem is getting more and more aggravated, which can very soon snowball into a far more debilitating NPA crisis than earlier.
In the past, the government forcing financial institutions to lend to already heavily indebted promoters of unviable projects in the name of “development” led to fraud and default. Neither the government nor the RBI seems to have learnt lessons from it. Once again, one witnesses the same old story being repeated.
For example, in recent times, the Central government opened floodgates to auctioning valuable mineral blocks to private promoters, knowing well that some of them had either willfully defaulted on repaying past bank loans or continued to remain heavily indebted. 91 coal blocks and 115 other mineral blocks have been allotted to private promoters, several among whom may have already become heavily indebted. Unconcerned about their credit-worthiness, the concerned Ministries, supported by the government and its agencies, have once again started pressurising PSU financial institutions to lend to them (https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1974078)
Among the successful bidders in mineral block auctions are wilful defaulters and those heavily burdened with debt.
To cite one specific example, the Government conducted auctions in May 2017 and allotted two valuable iron ore mines, Kalamang (West) and Netrabandha Pahar blocks in Odisha to Bhushan Steel Ltd (BSL), whereas that company had been under investigation by the Central investigating agencies at that time (https://scroll.in/latest/889952/serious-fraud-investigation-office-arrests-former-bhushan-steel-promoter-in-rs-2000-crore-scam & https://scroll.in/latest/840581/rbi-pushes-for-bankruptcy-proceedings-against-12-accounts-that-make-up-25-of-indias-bad-loans). The RBI had identified BSL as a “bad loan” company as early as in June 2017. More recently, a press release from the Enforcement Directorate (https://enforcementdirectorate.gov.in/sites/default/files/latestnews/Press%20Release-%20Bhushan%20Steel-16.10.2023.pdf) stated that it “conducted search and survey operations on 13.10.2023 at 30 locations in Delhi NCR, Haryana, Kolkata, Mumbai and Bhubaneswar, as part of investigation under PMLA, 2002 against the Promoters of M/s Bhushan Steel Limited (BSL) in connection with a Bank fraud of Rs 56,000 Crore”. This clearly shows how the Ministry of Mines, by auctioning iron ore blocks to wilful defaulters is paving the way for new NPAs!
A cursory look at the lists of successful bidders reveals that the Vedanta Group, struggling to repay its heavy debt (https://economictimes.indiatimes.com/markets/stocks/news/spotlight-still-on-vedanta-3-billion-debt-despite-spinoff-plan/articleshow/104174152.cms), has been allotted three coal blocks in Odisha. Similarly, the Adani Group stated to have excessively over-leveraged its operations (https://www.livemint.com/market/stock-market-news/adani-group-overleveraged-carries-three-times-as-much-debt-as-it-should-aswath-damodaran-11677578419475.html) has been allotted a coal block in Jharkhand, and three limestone blocks, one each in Andhra Pradesh, Gujarat and Rajasthan.
Has any quantitative assessment been made of the amount of loan assistance needed to finance the development of 206 mineral blocks, all in one go, and whether the banking system in India has the financial capacity to fulfil that need without cutting into loan assistance required for the priority sectors? Considering the enormous market value of those huge mineral resources, is the government wantonly handing over those resources to promoters, many of whom may not have the capacity to develop those resources, which belong to the people? Will it not further aggravate the problem of asset-liability mismatch that has already exposed the PSU banks to an unconscionable risk?
Is not the government knowingly forcing the financial system into yet another, perhaps a far more serious NPA crisis, while the RBI is passively watching?
Should not the RBI, as the banking regulator, step in urgently, stand up to assert its regulatory authority and reverse the tide of the NPA crisis?
What is at stake at this moment are the valuable mineral resources that belong to the people and the financial resources that belong to the depositors.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhapatnam
